Question

Calvin miscalculated his income in 2017 and overpaid his state income tax by $10,000. In 2018, he amended his 2017 state income tax return and received a $10,000 refund and $900 interest. Calvin itemized his deductions in 2017, deducting $12,000 in state income tax and $30,000 total itemized deductions (in 2017, individuals were not limited to a $10,000 state tax deduction when they itemized deductions). As a result of the amended return in 2018, Calvin must recognize $10,900 of gross income.

Answer 1

The correct answer is True.

Explanation:

According to IRS, "If you took an itemized deduction in an earlier year for taxes paid that were later refunded, you may have to include all or part of the refund as income on your tax return. Use Worksheet 2, Recoveries of Itemized Deductions in Publication 525, Taxable and Nontaxable Income to determine the taxable amount of your state or local refunds to report on your tax return."

Taken from irs.gov

Answer 2

Answer is True.

Refer below for explanation.

Explanation:

Therefore,

The $10,000 is included in gross income under the tax benefit rule. Interest on a state tax refund doesn't qualify for the state and local interest exclusion.